Good day, ladies and gentlemen, and welcome to the Red Violet's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now I would like to introduce your host for today's conference call, Camilo Ramirez, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good afternoon, and welcome. Thank you for joining us today to discuss our fourth quarter and full year 2025 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer; and Dan MacLachlan, our Chief Financial Officer. Our call today will begin with comments from Derek and Dan, followed by a question-and-answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit our Investors page on our website, www.redviolet.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. The company undertakes no obligation to update the information provided on this call. For a discussion of the risks and uncertainties associated with Red Violet's business, I encourage you to review the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K and subsequent 10-Qs. During the call, we may present certain non-GAAP financial information relating to adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share and free cash flow. Reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measure are provided in the earnings press release issued earlier today. In addition, certain supplemental metrics that are not necessarily derived from any underlying financial statement amounts may be discussed, and these metrics and their definitions can also be found in the earnings press release issued earlier today. With that, I am pleased to introduce Red Violet's Chairman and Chief Executive Officer, Derek Dubner.

Good afternoon, and thank you for joining us today to discuss our fourth quarter and full year 2025 financial results. We are pleased to report a record fourth quarter and a strong finish to 2025. The year was defined by disciplined execution, sustained momentum and broad-based demand across our markets. Adoption of our solutions remained robust, driven by the strength of our cloud-native intelligence platform and the expanding integration of our identity graph within customer workflows. Our team executed at a high level, and the strategic investments we have made over the past 2 years are translating into measurable operating performance. We entered 2026 from a position of strength with confidence in our architecture, our trajectory and the opportunity ahead. Let's briefly run through the numbers. Revenue for the quarter was up 20% to a record $23.4 million, producing record adjusted gross profit of $19.5 million, translating to adjusted gross margin of 83%. Adjusted EBITDA for the quarter was up 33% to $5.9 million, producing an adjusted EBITDA margin of 25%. Adjusted net income increased 53% to $3.1 million, resulting in adjusted earnings of $0.21 per diluted share. We generated free cash flow of $3.7 million during the quarter. For the second consecutive year, we bucked the fourth quarter seasonality we had traditionally experienced, delivering sequential revenue growth and establishing a new record quarter. Our IDI billable customer base grew by 169 customers sequentially from the third quarter, ending the fourth quarter at 10,022 customers. FOREWARN added 17,809 users during the fourth quarter, ending the quarter at 390,018 users. Over 620 REALTOR Associations are now contracted to use FOREWARN. For the year, revenue increased 20% to $90.3 million, producing adjusted gross profit of $75.4 million and adjusted EBITDA of $31 million. Adjusted EBITDA margin was 34% for the year. We…

Thank you, Derek, and good afternoon, everyone. The fourth quarter marked a record finish to an exceptional year for Red Violet, defined by strong revenue growth, expanding margins and meaningful cash generation. Importantly, we accomplished this while continuing to invest in the business for the long term, adding more than 30 team members during the year, with a focus on product development and go-to-market expansion. These investments were deliberate and strategic, expanding our AI-driven capabilities and broadening our market reach, all without compromising financial performance. We continue to scale the business both vertically, deepening adoption across existing markets, customers and use cases and horizontally, by introducing new products and expanding into new industries. That strategy is translating into larger and more valuable customer relationships, with 127 customers now contributing over $100,000 in annual revenue in 2025, up 31 customers from the prior year. It is also expanding the reach of our platform as we surpassed 10,000 customers on IDI and more than 620 REALTOR Associations contracted to use FOREWARN. Collectively, these results position us with strong momentum as we enter 2026, supported by a larger and more diversified customer base, expanding platform adoption and continued operating leverage. Turning now to our fourth quarter results. For clarity, all the comparisons I will discuss today will be against the fourth quarter of 2024, unless noted otherwise. Total revenue was a record $23.4 million, up 20% over the prior year. We generated a record $19.5 million in adjusted gross profit, delivering adjusted gross margin of 83%, up 1 percentage point. As is typical in the fourth quarter, personnel costs include year-end incentive compensation tied to annual performance. Even with this seasonal expense, adjusted EBITDA increased 33% to $5.9 million, producing adjusted EBITDA margin of 25%, up 2 percentage points. Adjusted net income increased…

[Operator Instructions] Our first question for today will be coming from the line of Josh Nichols of B. Riley Securities.

Great to see the company bucking the 4Q seasonality trend yet again. Looking at the enterprise pipeline, I know you secured a couple of wins. You mentioned like a toll authority and payroll processor, I think, the other quarter. Just any update on how that's progressing or generally, what you're seeing in terms of like the enterprise customer pipeline when we look at 2026?

Yes. Thanks, Josh. This is Dan, and I'll take that question. So yes, I mean, when we look at that enterprise pipeline and specifically kind of that higher-tier customer, we've been excited, and we've given some color on some recent wins. Obviously, we just announced a record number of customers in excess of $100,000 a year, almost a 30% increase -- just over a 30% increase in that customer cohort. And that's really representative of how that pipeline has developed and how that pipeline continues to develop. So we're excited about the investments we've made, the continued execution to move from lower to medium to higher-tier customers, and it's reflected in the cohort as announced today, 127 customers in excess of $100,000 in revenue a year. And so that pipeline continues to develop well, and we're converting into real meaningful customer wins.

And then just a follow-up. A lot of additions continue to see in like the law enforcement agency vertical, 200 plus this year. When you look at like the 2026 growth trajectory. Like what are the top 1 or 2 opportunities that you think are going to move the needle specifically in those end markets because you serve so many?

Yes. Thanks, Josh. Derek here. Great to talk to you. The end markets that I think that today, at least, we are most excited about, continue to be public sector and background screening support. And I think as Dan mentioned, we announced we won the largest payroll processor in Q3 last year. That contract kicks in this year. And so we're very excited about that. That proves our differentiation in the marketplace, testing and winning against very strong competition out there. And then in public sector, we continue to make very nice traction, as Dan talked about and you talked about in law enforcement. And we are seeing some great progress at the state level as well with a number of use cases in the way of eligibility requirements and identity verification. And those use cases really are so broad. They capture so many of various state agencies, if you will, use cases. So we continue to see progress there, and we continue to win those. And again, I think we've got a model that's very replicable, and we can replicate it across every state given the uptake there.

Our next question is coming from the line of Eric Martinuzzi of Lake Street Capital Markets.

I also wanted to focus on the higher-tier customers. That is very substantial growth there in those accounts that are doing over $100,000 annually. I know you've talked when you were asked the question about, hey, where can the business go, that there are, let's call them, whale-sized accounts in the $5 million to $10 million annually. Are there any of those prospects, those types of whale prospects in the pipeline that you guys feel are closer, could happen in 2026? Or is it still too soon to consider them in the funnel?

Eric, this is Dan. I appreciate the question. And yes, I mean, we have those opportunities now in the pipeline. We also have those opportunities as customers. The third quarter reference we made to one of the largest payroll processors in the country that we won, ultimately, the volume of that customer over time as we continue to expand that relationship can be a multimillion dollar a year customer. The minimum commitment is probably around low to mid-6 figures starting in 2026, which is great. But we think the opportunity to expand that relationship goes into the 7 figures and plus. So yes, we're really excited about the pipeline, but we're also excited about some of these recent large wins that are really representative of those type of customers you're talking about.

Okay. And I know it was probably -- last summer, you had a pretty substantial data rights agreement that you're able to renew on favorable terms. As far as 2026 goes, do we have anything of that nature, a substantial data rights exposure that we're working on? Or is it all relatively small in comparison?

Yes. There's really no material licensing renewal agreement that is coming up. I mean we structure these agreements, as you know, long-term, unlimited use, fixed fee structures. We have obviously entered into a renewal for another 6 years at the time, which would bring us past 2030 of our largest data provider, and we announced that, of course, midyear this year, which was great. But no, at this time, in the near term, there really is no material license agreements that are coming up for renewal.

Okay. And then as far as the 2026 outlook goes, you just finished the year where you grew 20% a quarter where you grew 20%. I know you're not in the guidance business. But right now, I've got kind of a mid-teens growth rate for 2026. Is that a good place to start out? Or are you confident that it's going to be 20% plus?

Yes, Eric. No, look, I appreciate the question. And as you know, we don't provide formal guidance. Going back to the start of 2024, our goal really, and we publicly disclosed, was to reaccelerate revenue growth and sustain that momentum over the next several years. 2024 was a great year of growth. As you mentioned, 2025 was a strong 20% growth. And we would expect 2026 to continue to deliver healthy top line expansion. So yes, I mean, our goal for the business is to continue to accelerate and drive the business and what you've seen consistently the last couple of years, but we're not going to provide any formal guidance as it sits today.

All right. And then you generated cash in the quarter. You did put some cash to work on your share repurchase program. A number of different levers you can pull there. You've done things like a onetime dividend in the past. You've used it to invest in data rights, M&A. What's the -- just here in the next 6 months, what's the likely use of cash?

Thanks, Eric. It's Derek. The likely use of cash is, definitely going to be investing in this business. There are just, as I mentioned in my commentary, so much opportunity and the AI-enabled development that's occurring, which is accelerating deployments and creating such opportunities across everybody's environment, it's especially true for us. So that horizontal expansion I talked about, that was always part of our key strategic plan, has now become also a vertical expansion where we know how our customers interact with us, and we can provide them better tools. And we can do that, we believe, in rather fast fashion in the development world as far as time goes so that we can get even further ingrained in their workflows. So that is our priority #1.

Our next question will come from the line of David Polansky of Immersion Investments.

Just to put a finer point on it. I think, Dan, you mentioned payroll processor. There was none of that in Q4. What about the toll authority? Was there any of that revenue in the Q4 number?

So there was some revenue from the payroll processor in Q4. The contractual minimum commitment of that processor, which is a multiyear agreement, does not start into 2026. So we did see some of that revenue but just early stages, nothing meaningful. And the toll authority at this point has been working on integration and some volume expansion. So very minimal revenue as a result of that win in Q4.

Great. And I was hoping it was nice to see the growth in high-spending customers. But -- could you help us understand, is that coming from new customer wins at high initial commitments? Or is that from growth in existing customer spend?

So it's a combination of both, which is great. And it's not only just growth in that cohort. We're seeing that growth across other cohorts, not just moving from one to the other, but expanding in each, right? So whether it's the $10,000 to $25,000 a year customer, the $25,000 to $100,000 a year customer or the $100,000-plus customer. Each of those cohorts are expanding nicely as we look at them. But it's a combination of both. It's some customers increasing volume, right? So when we win a big customer, they don't necessarily move all their volume at once. But slowly over time, we get the majority of their volume. Or it's a new customer win that happens to be a large, 6-figure plus year customer that we initially win. So it's been a good combination of both existing customer and new higher-tier customers.

So when I think about -- I know you don't provide a breakdown of FOREWARN revenue versus IDI revenue. But if I were to say revenue per IDI customer were to grow -- I mean, I have it growing at a high single-digit rate, but then I'm also mixing in some new high initial commitment customers in there. Are you -- is it safe to assume that existing customers are growing spend at sort of a mid-single-digit rate, like 5% to 6%, maybe a little bit more?

It's safe to assume a little bit more than that, yes.

Okay. Great. And then on headcount, I was a little bit surprised to see the sales and marketing headcount come down. I think we had initially discussed you'd be hiring a little bit more aggressively. So I don't know if there was some shuffling there or maybe phasing out less productive salespeople. Can you discuss that a little bit? And then what should we think about hiring and overall headcount for '26?

Yes. You're absolutely right in pointing out. It's kind of a little bit of end of the year, right? You're going to see a little ebb and flow. We always, as an organization, has focused on doing a really good job of bringing what I would say the C and D players up to A and B levels. And unfortunately, if those C and D players are not able to kind of get to that level, to churn out the bottom, so to speak. So we had a little bit of that at the end of the year. It makes sense, especially as you're kind of ending the year looking at final MBOs and then looking into next year and what your growth model and expectations should be for reps. So we had a little bit of that, but you'll see, I'm assuming here after we report the first quarter, kind of the reversion back in that sales and marketing line for some of those employees that just kind of we netted out at the end of the year. I think as we look at 2026 from an overall growth perspective, I think it would be very consistent with what we saw in 2025. In 2025, we added just over 30 new team members, mostly around product development and then go-to-market. The expectation would be very similar to that in 2026, a focus on product development, AI as well as go-to-market initiatives. So I think it'd be consistent with prior year.

All right. Great. And could you just highlight because you mentioned AI. I know it's embedded in the core engine, but just in terms of operational things, whether it's back office, finance, sales function, are you utilizing AI to help the business at all maybe to keep headcount growth less than where it's been?

Absolutely, David. Yes, this is Derek. And what I would say is that we announced in 2025, our strategic initiative to automate more. And so we've been doing that since. We've been looking across the enterprise to understand where we can automate using AI. There are so many tools that we could be using. And so we've been making good progress. But as I stated in my comments, that we would expect there is a lot more to do there. We're not a mature company. We didn't hire heavily during the pandemic. We're not looking to cut back. We're not citing AI for that. We are growing very quickly, and we're investing in the business, and that investment is for growth. And so as we continue to increase automation by hiring to do that and increase productivity, then we would expect the out years, if you will, or at least later that you're going to see all of that efficiency and productivity. So right now, it's a little bit more investment, but then we will bear the fruit of that investment.

Thank you. And that concludes today's Q&A session. I would like to turn the call back over to Derek Dubner for closing remarks. Please go ahead.

Thank you. As we look ahead, we're still in the early innings of a much larger opportunity. The digital transformation of identity, risk and decisioning continues to accelerate, and we've built the infrastructure and intelligence engine to serve as a foundational platform in that evolution. Our momentum, expanding enterprise relationships and continued innovation around AI-enabled capabilities position us to extend our reach, both horizontally, across industries and vertically, within customer workflows. We're building for scale, deepening our integration in mission-critical environments and strengthening the long-term economics of the business. We are excited about where we stand today and even more excited about where this platform can go.

Thank you for joining today's program. You may all now disconnect. This does conclude today's conference call.